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Whispering Manufacturing Ltd. has signed a lease agreement with LPN Leasing Inc. to lease some specialized manufacturing equipment. The terms of the lease are as
Whispering Manufacturing Ltd. has signed a lease agreement with LPN Leasing Inc. to lease some specialized manufacturing equipment. The terms of the lease are as follows: The lease is for 5 years commencing January 1, 2020. Whispering must pay LPN $55,657 on January 1 of each year, beginning in 2020. Equipment of this type normally has an economic life of 6 years. LPN has concluded, based on its review of Whispering's financial statements, that there is no unusual credit risk in this situation. LPN will not incur any further costs with regard to this lease. LPN purchases this equipment directly from the manufacturer at a cost of $211,214, and normally sells the equipment for $258,514. Whispering's borrowing rate is 7%. LPN's implied interest rate is 6%, which is known to Whispering at the time of negotiating the lease. Whispering uses the straight-line method to depreciate similar equipment. Both Whispering and LPN have calendar fiscal years (year end December 31), and follow ASPE. Click here to view the factor table PRESENT VALUE OF 1. Click here to view the factor table PRESENT VALUE OF AN ANNUITY DUE. From Whispering Manufacturing's perspective, is this a capital or operating lease? Whispering will classify this as a Prepare a lease amortization schedule for this lease. (Round answers to O decimal places, e.g. 5,275.) Date Payment January 1, 2020 January 1, 2020 January 1, 2021 January 1, 2022 January 1, 2023 January 1, 2024 eTextbook and Media List of Accounts Interest Principal Bala Prepare the journal entries on Whispering Manufacturing's books on January 1, 2020. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No entry" for the account titles and enter O for the amounts.) Date Account Titles and Explanation Jan. 1, 2020 (To record inception of lease.) (To record lease payment.) eTextbook and Media List of Accounts Debit Credit Prepare the journal entries on LPN Leasing's books on January 1, 2020. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No entry" for the account titles and enter O for the amounts.) Date Account Titles and Explanation Jan. 1, 2020 (To record inception of lease and cost of goods sold.) (Collection of lease payment.) > > > > Debit Credit Prepare the journal entries for Whispering Manufacturing on December 31, 2020. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No entry" for the account titles and enter O for the amounts. Round answers to O decimal places, e.g. 5,125.) Date Dec. 31, 2020 Account Titles and Explanation (To record interest.) (To record depreciation expense.) > Debit Credit Prepare the journal entry on LPN Leasing's books on December 31, 2020. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No entry" for the account titles and enter O for the amounts.) Date Account Titles and Explanation Dec. 31, 2020 (To record interest.) Debit Credit
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